Chapter 3

Trustees’ duties

Duty to inform

3.70The duty to account includes an obligation to make information available to beneficiaries. While trust deeds can never dispense with the requirement to account to beneficiaries and the need to provide some information to some beneficiaries, what is required in each trust is dependent on the trust’s circumstances. Because this is an area where trustees are often required to make difficult decisions and the law can be unclear, it seems to be one where provisions that give further guidance to trustees are warranted. This provision would apply to private trusts only.

Proposal

P9

(1) Duty to provide information: new legislation should provide that the duty to account in P6(1)(b) includes the obligation to make such information available to beneficiaries upon request as is reasonably necessary to enable the trust to be enforced. The duty to account is a mandatory obligation and will be implied into every trust as stated in P6.(2) New legislation should include provisions setting out how the duty and discretions regarding the provision of information to beneficiaries are to be exercised, including the following:

(a)a presumption that trust information will be given to a beneficiary upon request unless there is good reason for withholding the information;(b)in exercising the discretion to find that there is good reason for withholding trust information, a trustee:

(i) is subject to the general principle from Schmidt v Rosewood that all beneficiaries are entitled to receive the information that will allow them to hold trustees to account in the circumstances of the particular trust; and(ii) may take into account the following factors:

whether there are issues of personal or commercial confidentiality;

the nature of the interests held by the beneficiaries, including the degree and extent of a beneficiary’s interests or a beneficiary’s likely prospects of receiving trust property in the future;

the impact on the trustees, other beneficiaries, and third parties;

whether some or all of the documents can be disclosed in full or in redacted form;

whether safeguards can be imposed on the use of the documents (for example, undertakings, professional inspection);

whether, in the case of a family trust, disclosure or non-disclosure may embitter family feelings and the relationship between the trustees and beneficiaries to the detriment of the beneficiaries as a whole.

(3) New legislation should include a default provision that trustees make reasonable efforts to actively notify a qualifying beneficiary or the parent, guardian or property manager of a minor or incapable qualifying beneficiary of the following information:

(a)that the qualifying beneficiary is a beneficiary of the relevant trust;(b)the names and contact details of the trustees;(c)that the qualifying beneficiary has the right to make a request and be provided with a copy of the terms of the trust, including any amendments to the terms of the trust; and(d)that the qualifying beneficiary has the right to make a request to be provided with other trust information.

(4) New legislation should define “qualifying beneficiary” as:

(a)a beneficiary with a vested or contingent interest; or(b)a beneficiary who trustees reasonably consider has or may have in the future real prospects of receiving trust property.

(5) New legislation should provide that subject to the duty in P9(1), the default provision in P9(3) may be overridden or modified by the terms of a trust.(6) New legislation should define “trust information” as any information regarding.

(a)the terms of the trust;(b)the administration of the trust; or(c)the trust assets.

(7) New legislation should include provision for the terms of a trust to expressly require a trustee to give trust information to a beneficiary.(8) New legislation should include provision for a beneficiary to be charged for the reasonable costs of being provided with the trust information.(9) New legislation should include provision for a trustee or any beneficiary to apply to court for an order that the trustees supply trust information. The court would be able to review the exercise of the trustees’ discretion and the merits of the trustees’ decision.(10) New legislation should include provision for trustees and beneficiaries to seek advice from the Public Trust about the information that trustees are required to release. Trustees would be protected from liability if they act in reliance on the Public Trust’s advice. It would continue to be open for trustees and beneficiaries to seek an order from the court regarding the release of information by trustees. The Public Trust would have the power to charge for carrying out this service.

Please give us your views on this proposal.

Current law

3.71The decision of the Privy Council in Schmidt v Rosewood represents the law in this area.126 In accordance with this decision beneficiaries are entitled to receive information which will enable them to ensure the accountability of the trustees in terms of the trust deed. Where previously there had been a bright-line division in the right to information held by vested or contingent beneficiaries, who could receive specific trust documents as of right, and the right to information of objects of a power of appointment, this distinction no longer applies. The court will undertake a balancing exercise in considering the circumstances of the claim. The central factor in this consideration is whether the settlor intended the claimant to have a realistic possibility of receiving from the trust fund.127Schmidt v Rosewood has been followed by Potter J in Foreman v Kingston128 and Asher J in Re Maguire (deceased),129 and represents the accepted position in New Zealand. In Foreman v Kingston, Potter J identified a list of factors derived from Schmidt that may be taken into account by the court in the exercise of its supervisory jurisdiction and a list of documents that beneficiaries are likely to have access to unless there are reasons to withhold information.130

Issues

3.72There appears to be general satisfaction with the principle in Schmidt v Rosewood and no desire to change this. However, there is concern that from a practical perspective it is now difficult for trustees to determine what their obligation to provide beneficiaries with information entails, because the position relies on a discretion of the court. It appears that trustees are commonly required to make decisions about providing information and could do with greater clarification and guidance. The NZLS commented that the law is only partially satisfactory because there is uncertainty. It also pointed to several problems in practice: a lack of awareness among trustees of what the disclosure obligations are; inconsistent disclosure practices; uncertainty about the extent to which a settlor can exclude disclosure obligations; and uncertainty about what age beneficiaries must be before information must be disclosed to them. The TCA and Taylor Grant Tesiram found the decision in Schmidt to be unhelpful in practice and considered that more practical guidance in legislation would clarify the law and make it more accessible to trustees.

Options for reform

3.73The options considered are:

(a)a principles and discretionary approach – restating the principles guiding the exercise of discretion from Schmidt in legislation;(b)a list approach – a prescribed list of types of information that beneficiaries are entitled to;(c)a combination of principles and list – restating the principle from Schmidt and providing guidance about which information should be provided and when a trustee may decline to provide information; or(d)a variation on (c) suggested by the NZLS – taking the steps in (c), but in addition:

prescribing that certain information must be provided to “qualifying beneficiaries”;

allowing trust deeds to limit the trustee’s duty to give information to one or more beneficiary but not all beneficiaries;

allowing trust deeds to expressly require a trustee to give information to a particular beneficiary; and

providing that any beneficiary may apply to court for an order that the trustees supply information about the trust.

Discussion

3.74Option (c) was the preferred option for most submitters. We agree that the combination of a principled discretion with some guidance seemed to the best option. Option (b) would be too prescriptive, while option (a) would not make it any easier for trustees to make decisions. The discretionary approach from Schmidt v Rosewood seems to be the best method of addressing different types of trusts flexibly. Submitters, such as the NZLS, pointed out that some information could always or nearly always be available to certain beneficiaries, but other information was more sensitive. The need for a distinction between different classes of beneficiaries was also highlighted.

3.75The variation to option (c), suggested by the NZLS, has the added benefit of providing clear direction that certain information needs to be provided to “qualifying beneficiaries”, which would make the law clearer and more straightforward to apply in many cases. Those in the “qualifying beneficiaries” category are those who under the Schmidt v Rosewood principle would be effectively guaranteed of being able to receive the information that they are beneficiaries, contact details for trustees, and their right to receive the trust deed. Unlike the rest of this proposal which confirms the current law, the provisions relating to qualifying beneficiaries could not apply retrospectively, although they may be useful guidance for trustees of existing trusts.

3.76We realise that this may require a change in the practice of some trustees and that the notification could increase costs. The principles of trust law require that some information is given to these beneficiaries. If beneficiaries are not to be notified it would need to be justified by their not having a sufficiently close or likely interest in the trust property or that it was unreasonable to inform them, for instance because the class of beneficiaries is large. Trustees are unlikely to ever be justified in not providing information to a beneficiary who has a vested or contingent interest. By limiting the obligation to notify to only beneficiaries who meet the category of “qualifying beneficiaries”, who therefore have a proximate and likely interest, this requirement is not unreasonable.

3.77It may be necessary to exclude some trusts from the application of this provision. For instance, the Office of the Māori Trustee and Māori Land Court suggest that Māori land trusts would need to be excluded, because of the large numbers of beneficiaries and the need for sufficient flexibility to consider these trusts.

3.78The intention of including the provision requiring some information to be given to qualifying beneficiaries is to create a general rule that reduces trustee discretion and increases certainty in whether beneficiaries will receive information, making the law clearer and simpler for both trustees and beneficiaries. A weakness with this proposal is that it still relies on the trustee’s judgement about who is a qualifying beneficiary. The trustee decides if he or she reasonably considers that a beneficiary has real prospects of receiving trust property. This could make it hard for beneficiaries to know whether they are qualifying beneficiaries or not, and therefore may impact on their ability to truly enforce the trust. We cannot see a way around this, but are open to feedback on how this proposal can be improved.

3.79The NZLS’s proposal of allowing trust deeds to limit the trustee’s duty to give information to particular beneficiaries has not been followed. This would in many cases be a “flag” to litigate. It seems incorrect in principle to prevent certain beneficiaries from accessing the most basic information that they are a beneficiary and are entitled to request a copy of the deed, accounts and other information. Any later decision on whether to release or withhold information would be subject to the trustee’s discretion to withhold based on factors listed in the legislation.

3.80An alternative approach to including a default provision detailing the duty to inform beneficiaries that has been suggested is to include the provision as guidance in a best practice code instead. This is not our preferred approach as the law would be clearer with the provision in legislation and the proposed provision provides sufficient flexibility to trustees and the courts.

Guidance from the Public Trust

3.81Having a statutory role for the Public Trust was not something that was raised in the Issues Papers but it has emerged as a proposal to act as a lower-level official body that can carry out administrative functions and provide advice. One proposed function for the Public Trust is to provide advice on whether trustees are required to release information to beneficiaries. We would envisage that the Public Trust could provide a trustee with general advice on the information they are required to release as well as advice about specific material which beneficiaries have requested. The legislation would provide that the advice is non-binding but that trustees are protected from liability when relying on it. We consider that beneficiaries should also be able to ask the Public Trust whether trustees are required to release certain material to them. The Public Trust would then ask the trustees for information to help it to provide this advice to the trustees and beneficiaries concerned. A trustee that did not cooperate with the Public Trust would risk a contrary result if beneficiaries take the issue to court.

3.82This option has the advantage of providing low cost, authoritative guidance for trustees from an independent body, who, even with the additional direction in the new legislation, may want such a mechanism. The Public Trust is in a position to exercise judgement based on experience and expertise. Providing the Public Trust with this role could improve trustees’ decision-making regarding the release of information, reduce conflict between trustees and beneficiaries about the release of information, and reduce the need for cases to go to court for a decision on this issue.